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Preference Shares

General discussions about equity high-yield income strategies
MickR
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Preference Shares

#505911

Postby MickR » June 8th, 2022, 8:10 pm

What are peoples thoughts on the future of Preference Shares? I notice that the Bank of Ireland 13 3/8 have dropped to below 190p, with a yield of 7%. I'm already exposed to these at around 3% of my pot, but am tempted to buy a few more at these or other prefs at these prices. However, I'm aware that they wont be counted as capital in the same way going forward (2024?) so may not be around for much longer. Is it worth adding more at this stage in their life cycle or is there a possibility the prices will drop further as we get nearer to 2024, eroding capital

moorfield
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Re: Preference Shares

#505917

Postby moorfield » June 8th, 2022, 8:26 pm

MickR wrote:What are peoples thoughts on the future of Preference Shares? I notice that the Bank of Ireland 13 3/8 have dropped to below 190p, with a yield of 7%. I'm already exposed to these at around 3% of my pot, but am tempted to buy a few more at these or other prefs at these prices. However, I'm aware that they wont be counted as capital in the same way going forward (2024?) so may not be around for much longer. Is it worth adding more at this stage in their life cycle or is there a possibility the prices will drop further as we get nearer to 2024, eroding capital



Not many attractive issues around now. In the past I have tended to try and buy at distressed (sub par) prices. Bought SAN cheaply during the banking crisis, missed the boat buying REA at 55p (now back above par) when they deferred their cumulative dividend, and have lost out on RAVP following the invasion of Ukraine.

I am more interested now in holding Investment Trusts in the AIC Debt sector, the likes of SMIF NCYF which hold a mix of corporate debt and preference shares anyway, instead of single issues.

Padders72
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Re: Preference Shares

#505951

Postby Padders72 » June 8th, 2022, 10:36 pm

I have been selling down my considerable pref/FI holdings for the past year or so, I'm still way above your level in terms of portfolio % but I can see yields on these and similar rising to 8 or even 9% in the medium term if inflation continues to rise, as such I am not incentivised to buy at this stage, quite the opposite. If I am wrong and 7% really is the top then now is indeed the time to buy, but I am not confident it is. BOI has fallen from ~210p down to today's 185p bid in a matter of weeks. LLPC et al have followed suit. The smart move was to have sold back at 220p 6 months ago when inflation started to ramp up and eventually to buy back in at the bottom (or yield top), but hindsight is wonderful is it not.

vand
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Re: Preference Shares

#505975

Postby vand » June 9th, 2022, 6:59 am

I’ve been considering them myself. I think it is not a bad time to being accumulating if you have none. I mean, sure, it’s possible inflation will remain high and the will slide further, but in that scenario there is not much else that does very well either.

I consider as them as a substitute for abysmally yielding fixed income portion of my portfolio rather than a replacement for equities.

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Re: Preference Shares

#505984

Postby GoSeigen » June 9th, 2022, 7:51 am

MickR wrote:What are peoples thoughts on the future of Preference Shares? I notice that the Bank of Ireland 13 3/8 have dropped to below 190p, with a yield of 7%. I'm already exposed to these at around 3% of my pot, but am tempted to buy a few more at these or other prefs at these prices. However, I'm aware that they wont be counted as capital in the same way going forward (2024?) so may not be around for much longer. Is it worth adding more at this stage in their life cycle or is there a possibility the prices will drop further as we get nearer to 2024, eroding capital


Bank of Ireland 13 3/8 is not a preference share but a bond! They are a perpetual debt obligation of the issuer.

Are you wanting to discuss bonds or preference shares or fixed interest in general?


Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS

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Re: Preference Shares

#505986

Postby CliffEdge » June 9th, 2022, 7:58 am

moorfield wrote:
MickR wrote:What are peoples thoughts on the future of Preference Shares? I notice that the Bank of Ireland 13 3/8 have dropped to below 190p, with a yield of 7%. I'm already exposed to these at around 3% of my pot, but am tempted to buy a few more at these or other prefs at these prices. However, I'm aware that they wont be counted as capital in the same way going forward (2024?) so may not be around for much longer. Is it worth adding more at this stage in their life cycle or is there a possibility the prices will drop further as we get nearer to 2024, eroding capital



Not many attractive issues around now. In the past I have tended to try and buy at distressed (sub par) prices. Bought SAN cheaply during the banking crisis, missed the boat buying REA at 55p (now back above par) when they deferred their cumulative dividend, and have lost out on RAVP following the invasion of Ukraine.

I am more interested now in holding Investment Trusts in the AIC Debt sector, the likes of SMIF NCYF which hold a mix of corporate debt and preference shares anyway, instead of single issues.

I have some NCYF which supposedly pays around 8% from a mixture of stuff. It seemed like the lazy man's way to invest in some of the above. It doesn't look like a con but I'm sure it's risky.

moorfield
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Re: Preference Shares

#505992

Postby moorfield » June 9th, 2022, 8:38 am

CliffEdge wrote:I have some NCYF which supposedly pays around 8% from a mixture of stuff. It seemed like the lazy man's way to invest in some of the above. It doesn't look like a con but I'm sure it's risky.


A minor nagging alarm bell with NCYF is the manager who deliberately calls himself "Franco" (yes including the quotes) in all the company literature.

Anyway I agree with GS, prefs are not back at bargain basement levels yet, which is where one wants to be buying these.

vand
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Re: Preference Shares

#506013

Postby vand » June 9th, 2022, 9:41 am

GoSeigen wrote:
MickR wrote:What are peoples thoughts on the future of Preference Shares? I notice that the Bank of Ireland 13 3/8 have dropped to below 190p, with a yield of 7%. I'm already exposed to these at around 3% of my pot, but am tempted to buy a few more at these or other prefs at these prices. However, I'm aware that they wont be counted as capital in the same way going forward (2024?) so may not be around for much longer. Is it worth adding more at this stage in their life cycle or is there a possibility the prices will drop further as we get nearer to 2024, eroding capital


Bank of Ireland 13 3/8 is not a preference share but a bond! They are a perpetual debt obligation of the issuer.

Are you wanting to discuss bonds or preference shares or fixed interest in general?


Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS


Sovereign debt is only paying 2-3% though.

GoSeigen
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Re: Preference Shares

#506072

Postby GoSeigen » June 9th, 2022, 2:44 pm

vand wrote:
GoSeigen wrote:
Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS


Sovereign debt is only paying 2-3% though.


Why is that a problem?

GS

vand
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Re: Preference Shares

#506083

Postby vand » June 9th, 2022, 3:37 pm

GoSeigen wrote:
vand wrote:
GoSeigen wrote:
Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS


Sovereign debt is only paying 2-3% though.


Why is that a problem?

GS


Inflation is triple that

88V8
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Re: Preference Shares

#506091

Postby 88V8 » June 9th, 2022, 3:56 pm

MickR wrote:What are peoples thoughts on the future of Preference Shares?... I'm aware that they wont be counted as capital in the same way going forward (2024?) ...

Since some months I've been unloading my bank prefs in anticipation of 2024.

In general I am not adding to fixed interest atm because every time CBs raise rates, the value of fixed interest will fall.
Nice for yield, but it eats one's capital.
Wait until rate rises cease.

Really, I should have sold all my Prefs at their peaks, but... I am still holding onto AV.A/B, ELLA, BWRA, NWBD, (sold some when tendered). and BP.A/B.
I also have NATW, BOI, and some other stuff that I should have sold but I didn't realise how far SPs would drop, too late to sell now really.

In ITs, I have AXI, BIPS, NCYF and SHRS but am not adding for the same reason.

V8

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Re: Preference Shares

#506108

Postby Padders72 » June 9th, 2022, 4:40 pm

What you have to ask yourself is if many of the instruments mentioned in this thread were yielding circa 5-6% when interest rates and inflation were between 0 and 2%, where do you think yields will settle when inflation is near double digits and interest rates start to ramp up fast also? It only takes a 1.5% increase in yield in something like NWBD or LLPD for the price to need to fall ~25p, or around 17%. That is some capital hit. Now to me that doesn't sound beyond the realms of reason in the short to medium term. Were I holding as much as I was 5 years ago I would be losing sleep. Sorry if I sound like a broken record!

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Re: Preference Shares

#506116

Postby GoSeigen » June 9th, 2022, 4:57 pm

vand wrote:
GoSeigen wrote:
vand wrote:
GoSeigen wrote:
Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS


Sovereign debt is only paying 2-3% though.


Why is that a problem?

GS


Inflation is triple that


And so what? Inflation doesn't affect anything else, only gilts?? And only when they yield 2-3%??

You might want to flesh out the objection a bit more.

GS

vand
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Re: Preference Shares

#506139

Postby vand » June 9th, 2022, 6:08 pm

GoSeigen wrote:
vand wrote:
GoSeigen wrote:
vand wrote:
GoSeigen wrote:
Preference share prices are off their recent silly levels but not back in the bargain basement yet... If you want fixed interest the first to buy would be gilts/treasuries IMHO.

GS


Sovereign debt is only paying 2-3% though.


Why is that a problem?

GS


Inflation is triple that


And so what? Inflation doesn't affect anything else, only gilts?? And only when they yield 2-3%??

You might want to flesh out the objection a bit more.

GS


It affects fixed income FAR more than other asset classes because payments from fixed income is made in nominal terms, hence the name FIXED income

But yeah, you can just keep toeing the party line and pretend inflation doesn't exist or doesn't affect the value of your bonds

GoSeigen
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Re: Preference Shares

#506143

Postby GoSeigen » June 9th, 2022, 6:21 pm

vand wrote:
GoSeigen wrote:
vand wrote:
GoSeigen wrote:
vand wrote:
Sovereign debt is only paying 2-3% though.


Why is that a problem?

GS


Inflation is triple that


And so what? Inflation doesn't affect anything else, only gilts?? And only when they yield 2-3%??

You might want to flesh out the objection a bit more.

GS


It affects fixed income FAR more than other asset classes because payments from fixed income is made in nominal terms, hence the name FIXED income

But yeah, you can just keep toeing the party line and pretend inflation doesn't exist or doesn't affect the value of your bonds


Well look: this thread is about fixed interest (not shares or cash or anything else), and I said in the first post you commented on, that if one were to buy FI now gilts would be the one to favour. I don't see how that's in any way incompatible with your views on inflation: it's a statement about the likely performance of gilts relative to other bonds and FI.

GS

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Re: Preference Shares

#510555

Postby CliffEdge » June 29th, 2022, 10:05 am

GoSeigen wrote:
vand wrote:
GoSeigen wrote:
vand wrote:
GoSeigen wrote:
Why is that a problem?

GS


Inflation is triple that


And so what? Inflation doesn't affect anything else, only gilts?? And only when they yield 2-3%??

You might want to flesh out the objection a bit more.

GS


It affects fixed income FAR more than other asset classes because payments from fixed income is made in nominal terms, hence the name FIXED income

But yeah, you can just keep toeing the party line and pretend inflation doesn't exist or doesn't affect the value of your bonds


Well look: this thread is about fixed interest (not shares or cash or anything else), and I said in the first post you commented on, that if one were to buy FI now gilts would be the one to favour. I don't see how that's in any way incompatible with your views on inflation: it's a statement about the likely performance of gilts relative to other bonds and FI.

GS

Are gilts an investment?

GoSeigen
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Re: Preference Shares

#510777

Postby GoSeigen » June 29th, 2022, 9:54 pm

GoSeigen wrote:
vand wrote:It affects fixed income FAR more than other asset classes because payments from fixed income is made in nominal terms, hence the name FIXED income

But yeah, you can just keep toeing the party line and pretend inflation doesn't exist or doesn't affect the value of your bonds


Well look: this thread is about fixed interest (not shares or cash or anything else), and I said in the first post you commented on, that if one were to buy FI now gilts would be the one to favour. I don't see how that's in any way incompatible with your views on inflation: it's a statement about the likely performance of gilts relative to other bonds and FI.

GS


It's only about 3 weeks on, but since the above discussion NWBD (a popular preference share) down about 5%; 4 1/4% TREASURY GILT 2039 down about 2.5%.

Gilts win.


GS


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